Ethiopia: Annual Business Licence Renewal Needs Overhaul

There has rarely been a time that Girma Seifu (MP-Medrek), the relatively liberal opposition politician, has agreed with the declarations of the 'EPRDF-ites', who assume all but two of the seats at the federal parliament.

His is a world that is surrounded by as many opponents as one could possibly wish for. A lone opposition voice in the parliament, he is often seen struggling to make points in the few minutes that he is granted.

His opposition to the nomination of Kebede Chane, minister of Trade, made no difference, as the EPRDF-dominated parliament failed to give it adequate attention. Prime Minister Hailemariam Dessalegn, the new policy chief, responded to Girma's comment on the nomination in a largely skeptical manner. Little was mentioned about the competence of the personality who oversees the trade dealings of the nation, not to mention members of the expanding private sector.

Beyond Girma's opposition to Kebede's nomination, however, lies the dismaying performance of the trade ministry in handling the licencing and renewal of private businesses. Although small fixes had been made to the processs, by a simple business process reengineering (BPR) activity, under Girma Biru, former minister of Trade and now Ambassador and Plenipotentiary of Ethiopia, in theUnited StatesandCanada, it all went down hill under the immediate predecessor of Kebede, Abdurrahman Sheik Mohammed.

Kebede's approval at the parliament came after his service as acting minister, since the removal of Abdurrahaman and his deputy for reasons of incompetence. Yet, little has changed since his appointment. What seems to exist in the once technocratic ministry is simply the tinkering over problems.

But the disappointments of the business community over the undertakings of the Ministry are getting worse each day. At the core of this popular disenchantment lies the sluggish and bureaucratic business licence renewal process. Amazingly, there is little in the form of legal requirements for the entire process.

If anything, the process is dictated by tradition. The lone overdue tradition goes in such a way that tax compliance is aligned with business licence renewal. Tax compliance would decline, goes the traditional argument, if business licence renewal was removed as a process.

A similar practice was dominating the immigration regime of the nation. For a long time, since the previous socialist regime, travelling abroad, without an exit visa from the inland ministry of the country, was impossible. Individuals who wished to travel abroad used to pass through a very tedious and painful process of collecting clearances from a variety of agencies.

What would it take to change the whole scene? Just an administrative measure!

Indeed, there was a fierce resistance, from the bureaucracy, for the removal of exit visas. They were all related to the deep-seated tradition of the immigration regime. But, it all has changed with the seemingly simple, but revolutionary measure that the government has taken - abolishing the visa.

A similar tradition is holding the trade ministry back from creating a business climate conducive to private investment. Resulting from the archaic system is the annual chaos that has become routine within the business community. At the outcome end of the process resides disguised investment.

For the 'EPRDF-ites', the alignment of tax clearance and business licence renewal is a crucial way to enhance tax compliance. They often mention a pilot project, conducted in Amhara Region, as evidence of the impact of dissociating the two processes. Doing so pushes down compliance to 15pc, or so their argument goes.

But, the case is not supported by global evidence. Research evidence about the impact of having a business licence renewal system on tax compliance is all but scanty. Only a few countries have an obligatory annual business licence renewal regime. And all of them are African and post-crisis nations.

It is in the backdrop of such a traditional system that Kebede is appointed as trade minister. He brings a strong discipline and competence from his background in security, as chief of the Amhara Region's security apparatus. But, managing a system that has impacts expanding beyond the border of the nation, requires a lot more than what regional security requires. No doubt that it calls for revolutionary leadership.

Yet, Kebede, and his comrades at the trade ministry, seem to settle for tinkering over the systemic problems. Over their table of solutions lays a technological infrastructure that is intended to automate the very bureaucracy that remains to disenfranchise private businesses.

True, the automation has a lot to contribute towards procedural betterment. It would integrate the whole system together and hence reduce the time and cost of renewing a business licence. This, in turn, would reduce the strain on businesspeople.

Yet, it is less revolutionary than it seems. There would still be a need for business licences to be renewed every year.

It all would have changed had Kebede focused on changing the attitudes of the many specialists he manages. Streamlining a perspective, that counts business and profit making as a legitimate and worthy undertaking, would take the system many miles forward.

Largely, the fears of the system are analogous to the era of the exit visa. They are allowed to exist, only because tradition is allowed to dominate. They have nothing to do with efficiency.

This, however, does not mean that there should not be licence renewal at all. As both the national business laws and the on-the-ground reality show, renewal is warranted whenever there is a change in business ownership, line of business and high-level executive management. Such a renewal is important, as it entails a significant change in the personality of a given business.

Besides, renewing a business licence every year is like reaffirming the personality of an individual every year. It serves no purpose.

If, indeed, the objective is to enhance tax compliance, then the idea should not be to align it with business licence renewal, but to change the very culture of tax compliance. And the ball ought to be thrown to the tax authority. Implementing it indirectly is unfair and unjust.

A combination of effective tax enforcement and efficient business operation monitoring, could resolve the fears embroiled within the status quo. Certainly, it is through such a revolutionary measure that Kebede's experience and competence could successfully be deployed.

It is only then that Kebede's nomination, as the new chief of trade ministry, headquartered off Tito Street, could be proven right. Anything less than that would prove critics right and harm the economic ambitions of the nation, by discouraging investors.

It is indeed time for the trade specialists of the nation to end tinkering over problems and put a stop to the traditional practice of annual business licence renewal, once and for all.

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